rssHouse Dems Eye Overdraft Reform
Thursday, April 16, 2009 at 12:01 am
- 30 Comments
iStockphoto
It happens all the time. A thirsty consumer grabs a cup of coffee with a debit card, unknowingly exceeds the available balance, and gets smacked with a $30 fee for the $3 purchase.
The banks call it overdraft protection — the usually automatic loan fronted by institutions to cover purchases even when checking accounts have run dry. And they consider it a service to customers. But critics argue that the industry has adopted a slew of abusive tactics to maximize the frequency of these loans — and the considerable fees that accompany them.
Illustration by: Matt Mahurin
Now, as Congress is preparing to tackle a series of proposals tightening oversight and regulation of the finance industry, a growing chorus of lawmakers and consumer groups is urging Democratic leaders to include overdraft reform as a part of the package. In an economy where taxpayers have already bailed out Wall Street banks to the tune of billions of dollars, they argue, those institutions shouldn’t be permitted to turn around and slap abusive fees on their rescuers.
“They’re taking the TARP funds and then they’re raising fees and rates on the same people who funded TARP,” Pamela Banks, policy counsel at Consumers Union, said of the banks benefiting from the Troubled Asset Relief Program. “They’re double dipping with the taxpayers’ money.”
But reform won’t come easy. Overdraft fees are a whirling profit engine for banks, and the industry is fighting tooth and nail to keep Congress at bay. Indeed, in a report released last November, the Federal Deposit Insurance Corporation found that overdraft fees range from $10 to $38, with a median charge of $27. And those fees add up. A 2007 report from the Center for Responsible Lending found that overdraft fees bring in roughly $17.5 billion each year — more than the estimated $15.8 billion in overdraft loans that generated them.
Industry representatives maintain that overdraft protections are designed to benefit customers. “In general, people do appreciate and value this service,” said Nessa Feddis, spokeswoman for the American Bankers Association. She said that consumers can easily avoid trouble by keeping track of balances, maintaining a balance cushion or opting into programs where the debit account is linked to a second account or a line of credit to absorb the overdraft. “There are all sorts of ways to to avoid it,” Feddis said.
Critics argue, however, that many of the industry’s practices hit below the belt. Among the most controversial, most banks automatically enroll customers in the overdraft protection program, without their knowledge or consent. Also, most institutions manipulate the order of purchases, often increasing the number of overdraft transactions. And there is no system in place warning shoppers when they’re poised to buy something that will send them into overdraft territory.
A House bill, sponsored by Rep. Carolyn Maloney (D-N.Y.), takes steps to protect consumers on all three fronts — but the bill faces a tough road ahead.
Despite wide agreement that the finance industry is largely responsible for the current economic mess, it retains enormous sway on Capitol Hill, where controversial housing legislation has stalled already this year in the face of industry opposition. Furthermore, Congress has spent hundreds of billions on the banks in recent months, hoping they’ll re-grease the economy by increasing lending. In the wake of those efforts, many lawmakers will likely be reluctant to support legislation that could hurt industry profits, even if those reforms protect consumers. Such proposals will likely be spun as undermining bailout efforts.
Graham Steele, an attorney at Public Citizen’s Congress Watch, said many lawmakers are “spooked by the apocalyptic messaging” of the banking lobby. “They seem to still have traction on Capitol Hill, unfortunately,” Steele said.
The debate highlights the difficulty facing lawmakers pushing to reform the powerful finance industry: In good economic times, there’s a tendency in Washington to stay out of the affairs of banks for fear of impeding an economic engine; in bad economic times, there’s a tendency to stay out of their way for fear of hindering recovery. Ironically, the current economic chaos might make it more difficult for proponents of finance reforms to rally the congressional support to pass the proposed changes.
On Tuesday, Bank of America made headlines by scrapping plans to hike its overdraft fees from $35 to $39 per transaction. BoA spokesman Jim Pierpoint said the decision was made in consideration of the troubled economy, particularly the rising rate of unemployment. The company is also working on a case-by-case basis with newly unemployed customers to review overdrafts, he said. Yet two other recent BoA policy changes — one applying a $35 fee if a customer’s balance is negative for five days, and another hiking allowable overdraft fees at 10 per day, up from seven — will remain in place, Pierpoint said.
Faced with declining revenues, other banks are also tightening the belt on consumer benefits — adopting new fees and reducing borrowers’ credit card limits.
Some Democrats aren’t holding their breath for the banking industry to volunteer overdraft reforms. The Maloney bill would prohibit automatic enrollment in a bank’s overdraft protection program, instead requiring the customer to opt-in to participate. It would also alert debit card users at the ATM or the coffee counter if they were about to exceed their balance, allowing the shopper to opt-out of the purchase to avoid the penalty fee. Finally, the bill would prohibit any reordering of purchases that leads to an increase in overdrafts.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has vowed in coming weeks to take up a series of finance reform bills, including proposals to reform the credit card and mortgage lending industries. Frank spokesman Steven Adamske said Tuesday that overdraft reform is on Frank’s radar, but it remains uncertain if or when the committee would consider the legislation this year.
There is no companion to the Maloney bill in the Senate.
Of the various industry tactics, the resequencing of transactions to maximize overdrafts is perhaps the most obscure. In a hypothetical case, a card-user with $100 in available funds might buy a $75 sweater, a $2 cup of coffee, a $4 hamburger and $30 worth of groceries — going over the limit only on the final purchase. But banks often tally each day’s transactions by order of the purchase amount — largest to smallest — not by chronology. In this example, the consumer would exceed the limit after just the two largest purchases ($75 + $30 = $105), and thus be hit with overdraft fees on the two smaller purchases as well. The result? The bank gets three overdraft fees ($81) instead of just one ($27).
Feddis, said that tactic is precisely what customers want, arguing that the the most vital purchases tend to be the most expensive. “People want their important expenses paid,” she said.
Maloney’s office, though, isn’t buying the argument. “Whether it’s by design or innocent, its effect is to incur more fees,” said Maloney spokesman Jon Houston. “They’re using this as a profit center.”
The Federal Reserve has taken recent steps to protect consumers from overdraft fees as well. In December, the Fed proposed two strategies to give customers more options surrounding overdraft payments. The first would prohibit banks from charging overdraft fees on purchases already made without first giving consumers the choice to opt-out of the program. The second is an opt-in approach, requiring specific consent from the customer before banks could authorize overdraft purchases at all. The final rule is expected before the end of the year.
The Fed’s action could easily be the only overdraft reforms of 2009. Faced with the imposing opposition of the finance industry, some observers say, Congress won’t likely get very far with its finance reform agenda this year.
“I … can’t think of another sector that has proven itself so adept over the years at blocking even minor reforms,” Stephen Pearlstein, the Pulizer Prize winning business columnist for The Washington Post wrote Wednesday. “With so many conflicting interests among well-heeled firms and so many agencies fighting to protect their bureaucratic turf, the most likely outcome is political stalemate.
“Watching the Senate Banking Committee deal with financial regulation,” Pearlstein added, “is a bit like watching a cow chew its cud.”
30 Comments
Pingback posted April 16, 2009 @ 12:23 am
[...] News Sources wrote an interesting post today onHere’s a quick excerptiStockphoto It happens all the time. A thirsty consumer grabs a cup of coffee with a debit card, unknowingly exceeds the available balance, and gets smacked with a $30 fee for the $3 purchase. The banks call it overdraft protection — the usually automatic loan fronted by institutions to cover purchases even when checking accounts have run dry. And they consider it a service to customers. But critics argue that the industry has adopted a slew of abusive tactics to maximize the frequency of t [...]
Pingback posted April 16, 2009 @ 2:17 am
[...] House Dems Eye Overdraft Reform Share and [...]
Pingback posted April 16, 2009 @ 9:23 am
[...] are taking TARP funds and then raising fees on overdraft has some Dems a little annoyed. From the Washington Independent: Now, as Congress is preparing to tackle a series of proposals tightening oversight and regulation [...]
Comment posted April 16, 2009 @ 9:02 am
It's a little known fact , even at the banks, that you can opt out of this “service” of overdraft protection. All you have to do is stop at a branch and tell them you want to opt out of the protection. It will take them a few minutes to find the forms, blow the fust off them etc. But once you sign it, they can no longer accept charges on your ATM card if the money isn't there. It may be a bit embarrassing at the hamburger place, but I'm up for $35.00 worth of embarrassment considering that would just about take care of a weeks worth of groceries.
Pingback posted April 16, 2009 @ 1:47 pm
[...] in Business, Congress, Daily life, Democrats at 10:47 am by LeisureGuy This is a good step, but nowadays I expect it to die in the Senate due to the banking industry’s fully-owned [...]
Comment posted April 17, 2009 @ 3:27 pm
These incredible fees on very small dollar amounts is one of the reasons that many people turn to payday loans when they come up a little short between pay checks. Maybe the Washington Independent should take a more well-rounded view of their position on payday loans.
Pingback posted April 18, 2009 @ 12:50 am
[...] House Dems Eye Overdraft Reform: Now, as Congress is preparing to tackle a series of proposals tightening oversight and regulation of the finance industry, a growing chorus of lawmakers and consumer groups is urging Democratic leaders to include overdraft reform as a part of the package. In an economy where taxpayers have already bailed out Wall Street banks to the tune of billions of dollars, they argue, those institutions shouldn’t be permitted to turn around and slap abusive fees on their rescuers. [...]
Comment posted April 20, 2009 @ 3:52 pm
cant these people read.probably the same people acorn used to get more of our money.
Comment posted April 22, 2009 @ 6:17 am
I wish our congressional leaders had the guts to deal with this behavior, which in my opinion is immoral, if not illegal. I'm currently helping with my college student son who is faced with over $800 in debit overdraft fees for a first time event with under $50 in overdrafts. Citizens Bank seems to be one of the worst offenders with the highest fees ($39 for an overdraft) and a regular practice of manipulating sequence of fees to maximize rates and pillage a customers account. This bank has already confiscated $350 from his account in fees and maintains that he owes $500 more on penalties on the overdrafts (form of Ponzi?). This all started when they did not credit a transfer from his other account in a timely fashion causing the account to overdraw. Once they have the machine in motion they take full liberty with full access to YOUR funds. This article and the action by congress supports the fact this practice is systemic and only points to the continued greed of our financial sector. Every one of the higher management of any bank receiving TARP money should be forced to resign due to this and the other abuses they force on consumers.
Comment posted April 22, 2009 @ 7:57 am
I got smacked with a $30 fee a few months ago b/c the balance in my checking account was 55 cents — that's CENTS — short for paying my rent check.. these goons are nothing but THIEVES… the fact that it's LEGAL for them to steal from their customers does not make it any less a THEFT.
Comment posted May 1, 2009 @ 12:00 pm
I would love government to stand up for the people on this one. What banks refere to as a “service” actually seem more like theft if you ask me. Consumers get no option about using this so called service, instead banks walk off with a lot of money. I would support my state's reps on this one for sure and hope that banks don't get the final word on this one. In addition, this overdraft policy banks employ hurts those least able to affort the penalties. The poor and lower income brackets are being abused with these bank policies!
Comment posted May 17, 2009 @ 10:07 pm
I would like to know what to do about a bank that is basically stealing money by using overdraft fees. When looking at the statement, when the payment is posted to my account, there is a positive balance for about 7 payment, then the last debit put us over by $1.61 and they charged us 7 overdraft charges, even though there was a positive balance after each debit. Then a deposit goes in, the first check to hit gets paid, the next two items put us in the negative again, because the $280 overdraft fees took pretty much all of the deposit, then we get charged 3 more charges $105 when only two charges show in the negative. The back says it's because all of the charges together with pendings puts us in the neg. and they charge us for each one. It's their new policy. What can I do?
Comment posted May 19, 2009 @ 4:00 am
Go to a bank that charges $0 overdraft fees. It never charges a fee even if i overdraw.
that is whay I did. go to http://www.probityfinancial.com
Comment posted May 19, 2009 @ 11:00 am
Go to a bank that charges $0 overdraft fees. It never charges a fee even if i overdraw.
that is whay I did. go to http://www.probityfinancial.com
Comment posted July 18, 2009 @ 11:33 pm
I was searching for the $0 overdraft fee bank you mentioned. I found it at http://www.probityfinancialservices.com
Comment posted August 25, 2009 @ 6:23 pm
Recently Citizens Bank imposed 195.00 of overdraft fees to my account that never showed a negative balance!!!!! Thieves
Pingback posted September 23, 2009 @ 11:21 pm
[...] congressional Democrats leading the effort to protect consumers from overdraft fees said today that, despite Tuesday’s news that Bank of America and JP Morgan Chase will adopt [...]
Comment posted October 20, 2009 @ 6:59 am
I hear you on that one. I had a company that tried to charge my checking account when it had no money. Obviously I had no money, so their attempt to charge my card was declined. Guess what, the bank STILL CHARGED ME A NSF FEE. Like what the heck? I ended up getting over 500 dollars worth in NSF fees ALONE. I got so many fees that I couldn't pay it back, and the bank wouldn't compromise with my fees. So i lost my checking account and now i had to get a second chance checking account because my name got on chexsystems. I swear this whole 'overdraft fee' is total bull shit. If my account has 0 dollars in it, and a company tries to charge my checking account but gets declined, the bank has no right to charge me 30 bucks when they didn't give anyone money. My own bank tried to tear me a new one.
Comment posted October 22, 2009 @ 11:43 pm
The middle class is under siege! Who do you think paid the majority of the 39 Billion in Revenues that the banking industry incurred from NSF? This was an attempt by the banking industry to recover from the housing bubble. And who do they target? The middle class consumer who bailed them out. Talk about biting the hand that feeds you! I check my balances everyday, and already know their patterns, and I know they are manipulating the charges that are coming in on a given day in order to maximize fees. I have learned to beat them at their own game. It is a shame that I have to look over my shoulder every time I swipe my ATM card. It is a shame what has happened to this country where your own bank attempts to screw you with your pants on! I am currently looking into credit unions to put my money, I know longer have faith in the banking industry in this country. I would encourage anyone who is reading this post to do the same. The banking industry should be ashamed of themselves, they are heartless and do not deserve any decent hardworking american's money especially in an economic climate that we are currently in!
Comment posted December 31, 2009 @ 1:20 pm
I wonder why no one has ever observed that NSF is a major contributor to the economic mess in this country. The Bank will slap you with hundreds of dollars in NSF fees as a result of a few transactions that may overdraw your account with as little as 20 dollars. Your account is overdrawn by several hundred dollars for a few weeks then closed and reported to credit bureaus. Next time you go to a car dealership to take a car loan you are denied. Your credit is screwed and someone in Detroit is laid off coz less cars are sold. Where does the NSF fees go to. Fat Cats in walls street. Executive bonuses!
Comment posted January 12, 2010 @ 7:45 am
OMG! It's simple math people. When you make a deposit it's an addition to your bank ledger, when you pay a bill or buy something it's a subtraction. When the total gets to $0 STOP BUYING CRAP!! It's the idiots that haven't figured this out that allows me to have a free checking acct. – no monthly fee for me because I know once I hit a certain point – I stop spending money!!! What's next? Grade reform? If someone does extremely poorly teachers and professors won't be ALLOWED to give an F??? Stop molly-coddling people and make them grow up and take responsibility for their own actions!!
Comment posted January 12, 2010 @ 7:45 am
OMG! It's simple math people. When you make a deposit it's an addition to your bank ledger, when you pay a bill or buy something it's a subtraction. When the total gets to $0 STOP BUYING CRAP!! It's the idiots that haven't figured this out that allows me to have a free checking acct. – no monthly fee for me because I know once I hit a certain point – I stop spending money!!! What's next? Grade reform? If someone does extremely poorly teachers and professors won't be ALLOWED to give an F??? Stop molly-coddling people and make them grow up and take responsibility for their own actions!!
Comment posted March 4, 2010 @ 7:24 pm
Wow, Kathy, you are really, really a tool. A tool for the thieves running this country.
Could you be more stupid? It isn't simple math and that's the problem. It's you against the computer algorithm. It's the system that allows money be to withdrawn when it doesn't exist, for extremely expensive short term loans.
Grow a brain!
Comment posted March 5, 2010 @ 12:24 am
Wow, Kathy, you are really, really a tool. A tool for the thieves running this country.
Could you be more stupid? It isn't simple math and that's the problem. It's you against the computer algorithm. It's the system that allows money be to withdrawn when it doesn't exist, for extremely expensive short term loans.
Grow a brain!
Comment posted June 2, 2010 @ 3:35 pm
Thank you for your sharing.I'm very interested in it.
Comment posted August 5, 2010 @ 12:16 pm
Stop molly-coddling people and make them grow up and take responsibility for their own actions!!
Comment posted August 5, 2010 @ 12:16 pm
Stop molly-coddling people and make them grow up and take responsibility for their own actions!!
RSS feed for comments on this post.
Sorry, the comment form is closed at this time.
